EnergyTag Oral Testimony to the US Treasury Department

by Killian Daly · 27th March 2024 ·

EnergyTag fully supports Treasury’s proposal for electrolytic hydrogen – including the three pillar framework – and we urge Treasury to finalize this strong proposed guidance in its current form.

EnergyTag Oral Testimony

March 27, 2024

45V Clean Hydrogen Production Tax Credit

Internal Revenue Service

Good Morning,

My name is Killian Daly and I am the Executive Director at EnergyTag, an independent not-for-profit organization based in Europe, focused on promoting and enabling robust hourly electricity accounting standards globally. Previously, I oversaw energy sourcing for one of the world’s largest hydrogen producers, where I worked on a project that demonstrated hourly matching for an electrolyzer in Europe over five years ago. 

EnergyTag fully supports Treasury’s proposal for electrolytic hydrogen – including the three pillar framework – and we urge Treasury to finalize this strong proposed guidance in its current form.

EnergyTag maintains the world’s only voluntary standard detailing how hourly Energy Attribute Certificates can be issued and used to robustly verify hourly matching claims, including claims of deliverability and incrementality. Our standards are supported by hundreds of stakeholders including United Nations Energy.

EnergyTag also worked here in Europe to ensure that the European Union embedded strong three-pillar rules for renewable hydrogen last year. Their implementation has not killed the industry here in Europe, quite the opposite, a recent EU hydrogen auction was massively oversubscribed over 8 Gigawatts of 3-pillar compliant projects. We also believe these three pillars are crucial to establishing transatlantic trade for clean products, like hydrogen, based on common, robust standards. 

In my testimony today, I will focus on five key recommendations that EnergyTag believes the Treasury should follow to ensure a robust and feasible implementation of the 45v tax credit.

Recommendation 1 –  Treasury should maintain the 2028 phase-in date for hourly matching, without grandfathering  

Overwhelming evidence – including from DOE and the EPA – shows that absent any of the three pillars, the risks of significant induced grid emissions from hydrogen production are high. Studies by Princeton ZERO Lab, Energy Innovation, and the MIT Energy Initiative find that if hydrogen projects are not required to comply with all three pillars, they could have an emissions intensity upwards of 40 times the 45V threshold to qualify for the $3 per kilogram of hydrogen credit value. 

Moreover, various analyses have shown that hourly matching can be achieved economically by combining different clean energy resources to enable 100% hourly matching at high electrolyzer utilization rates (e.g over 70%). The fundamental contractual and tracking infrastructure for hourly matching is already demonstrated today. For example, major US corporations have signed giga-watts of long-term Power Purchase agreements with hourly matching rates well over 80%. Spot trading markets for hourly EACs are also under development and will supplement the levels of hourly matching achievable, but they are not strictly necessary to make electrolyzer projects viable. The bilateral contract structures for power sourcing available today are enough to achieve rates of hourly matching sufficient to make projects bankable. 

Recommendation 2 –  Treasury should consider requiring a standard for the Energy Attribute Certificate (EAC) registries to follow for annual and hourly EACs. 

Energy Attribute Certificates have traditionally tracked physical energy production on a monthly or annual basis, and hourly EACs will enable this in a scalable way on an hourly basis. To ensure that energy is tracked and accounted for in a harmonized way through robust systems that mitigate the risks of tax fraud and double counts, Treasury should encourage the adoption of a standard for EAC registries to follow and auditing of compliance with this standard by qualified 3rd parties. This should be the case for both annual and hourly EACs. 

The EnergyTag standard provides an open-source common framework to enable hourly EACs and implement hourly matching. It is being adopted by EAC registries in the US, EU, and across the global south.  It was developed by the experts who designed the European Guarantee of Origin system, the world’s oldest and largest regulated standardized EAC system. Treasury is free to adopt this standard or could use this standard as the basis for a US registry standard. 

Recommendation 3 –  Treasury should reinforce the 2028 phase-in for hourly matching as ample time for hourly EAC registries to scale. 

The basic technical nature of hourly matching is not new or particularly complicated, it involves matching the volume of energy consumed in a given hour with clean electricity produced in that hour, which is the way that power markets operate today. Hourly EACs are an important tool to ensure hourly matching can be done at scale. 

While not all registries in the United States can issue hourly EACs today, a recent report by the Center for Resource Solutions (cited in the 45V guidance) found that nearly all U.S registries could transition from annual to hourly certificates in 2 years.  Leading registries like M-RETs and PJM GATS already offer hourly views of monthly EACs and are scaling up their hourly EAC offering, while countries such as Taiwan, have required hourly EACs for a number of years. This is a solvable technical issue provided sufficient regulatory backing. Given these advancements and the fact once one registry can issue hourly EACs they could technically cover the entire US, Treasury should rest assured that a phase-in by 2028 is ample time to ensure the widespread availability of hourly EACs in the US. 

Recommendation 4 – Treasury should allow a provisional pathway to demonstrating hourly matching that uses hourly meter data and annual EACs available today.

The standard way of implementing hourly matching today is to add hourly meter data to Annual (or monthly) EACs. The use of registered annual/monthly EACs ensures that there is no double counting, while additional meter data enables hourly claims. This method is already being used by dozens of organizations in the United States and around the world to demonstrate millions of Mega-watt hours of hourly matching. 

Standards such as EnergyTag, can ensure this is done robustly without double counting. This would give certainty as of today for clean hydrogen projects looking to finalize investment decisions that the hourly matching accounting is possible. Once hourly EACs become widely available, the use of this provisional pathway should be removed. 

Recommendation 5 – Treasury should provide guidance describing how standalone storage is included in the 45v credit.

Storage can also provide significant value to the production of clean hydrogen by increasing rates of hourly matching.

We strongly encourage Treasury to clarify the rules on how standalone storage can be used to optimize hourly matching rates for electrolyzers, ensuring that losses and a fair allocation of attributes are charged and discharged from the storage system each hour. EnergyTag’s standards and our public comments provide more detailed guidance on how this can be implemented. 

 

Conclusion

In sum, with its draft rulemaking, Treasury has shown a commendable commitment to scientific integrity. We urge Treasury to finalize these strong rules. Based on over five years focussed on this specific topic from both non-profit and hydrogen industry perspective I can assert that the three pillars are critical to scaling the hydrogen industry while simultaneously ensuring it supports the decarbonization of the U.S. economy. Hourly matching is proven and technically feasible and the phase-in to 2028 should be maintained with a provisional pathway for early projects to use hourly meter data to demonstrate compliance. We thank you for the opportunity to contribute our thoughts today.